San Bruno Gas Explosion May Net $2.25B Fine

(CN) – California safety regulators say Pacific Gas and Electric Company should pay a $2.25 billion penalty for a fatal 2010 gas pipeline explosion in San Bruno, Calif. Eight died and 58 were injured in the explosion, which was “the worst accident of any electric or gas public utility in the history of California,” according to a new brief from the Consumer Protection and Safety Division (CPSD) of the California Public Utilities Commission (CPUC). CPSD Director Jack Hagan wrote the brief, which notes that “the death toll, physical injuries, and extensive damage to homes, is unsurpassed in its severity.” He added that the explosion “was entirely foreseeable and preventable.” The penalty money would be used solely for safety purposes, according to the 70-page brief. If the CPUC adopts the recommendation, it would be the largest penalty ever assessed to a utility company. “The serious failure by PG&E to detect and prevent this explosion, leading up to (and during) the incident, was morally and ethically reprehensible,” Hagan wrote (parentheses in original). The CPSD has proven that PG&E is guilty of more than 100 violations that have continued for many years, but fining the company for each of these violations would result in tens of billions of dollars of fines – more than PG&E’s net worth, Hagan noted. “Consequently, CPSD recognizes that there is a limit on how much PG&E can afford to pay, because PG&E needs to retain its creditworthiness in order to be able to pay for its improvements in the safety of its facilities, as well as to procure natural gas and electrical power,” the brief states. It does not make sense in this case to follow the normal route of imposing fines that would go into the state’s general fund, according to the brief, which notes that this would leave PG&E customers paying for system improvements, accordin “Because PG&E only has a finite amount of money which it can afford to pay for penalties, and its ratepayers would have to pay the remaining amount of dollars required to repair PG&E’s natural gas transmission system, the commission should use its equitable powers to order PG&E to pay for remedies that will ensure that its system will be safe without putting the entire burden on ratepayers,” the brief states. The CPSD said it retained a financial consultant to determine how much PG&E could afford to pay in fines without having negative consequences on California’s ratepayers. With operating revenues of more than $15 billion a year and profits approaching $2 billion per year, PG&E should be able to afford the penalties, the safety division said. “This penalty is not recoverable from ratepayers nor are the capital expenditures paid for by these amounts to be included in the rate base,” the report states. “PG&E can not underspend in any other areas of their operations that affect safety to offset any of these expenditures.” The $2.25 billion penalty should be applied to PG&E’s Pipeline Safety Enhancement Program and to pay for auditors and other remedies that will improve safety, the report says. The penalty amount would include the approximately $1 billion PG&E has already invested in system upgrades and repairs. PG&E CEO Tony Earley said he is “deeply concerned” about the proposed fines. “I understand the desire to punish PG&E,” Earley said in a statement. “However, the penalties proposed by the Commission staff and others far exceed anything that I have seen in my 30 years in the industry and fail to appropriately account for the actions taken by the company.” “I am deeply concerned that an excessive penalty, such as those proposed, could dramatically set back our efforts to do the right thing by making it harder and more costly to finance the remaining improvements that are needed in our gas system,” he added. “To avoid this, it is essential that the Commission take a more balanced approach in rendering its final decision.”